Could Bitcoin have launched in the 1990s – or did it wait for Satoshi?
This year, October 31 marked the 14th anniversary of the release of one of the most consequential white papers of this century – Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System.” The 2008 publication sparked a “revolution in finance” and “heralded a new era for money, one that derived its value not from government mandates, but rather from technological prowess and ingenuity,” which NYDIG celebrated in its Nov. 4 newsletter.
However, many are unaware that Satoshi’s nine-page white paper was initially met with some skepticism, even among the cypherpunk community where it first appeared. This reluctance may be understandable since previous attempts to create a cryptocurrency failed—David Chaum’s Digicash effort in the 1990s, for example—and also, at first glance, Satoshi didn’t seem to bring anything new to the table in terms of technology.
“It was technically possible to develop Bitcoin in 1994,” Jan Lansky, head of the Department of Informatics and Mathematics at the Czech University of Finance and Administration, told Cointelegraph, explaining that Bitcoin is based on three technical improvements that were available at the time : Merkle trees (1979), blockchain data structure (Haber and Stornetta, 1991) and proof-of-work (1993).
Peter Vessenes, co-founder and chief cryptographer at Lamina1 — a layer-1 blockchain — basically agreed: “We definitely could have been mining Bitcoin” in the early 1990s, at least from a technical perspective, he told Cointelegraph. The necessary cryptography was in hand:
“Bitcoin’s elliptic curve technology is technology from the mid-1980s. Bitcoin does not need in-band encryption like SSL; the data is unencrypted and easy to transfer.”
Satoshi is sometimes credited with establishing the proof-of-work (PoW) protocol used by Bitcoin and other blockchain networks (but no longer Ethereum) to secure digital ledgers, but even here he had assumptions. “Cynthia Dwork and Moni Naor proposed the idea of proof-of-work to combat spam in 1992,” Vessenes added.
PoW, which is also effective in preventing Sybil attacks, establishes a high financial price for making changes to the digital ledger. As explained in a 2017 paper on Bitcoin’s origins by Arvind Narayanan and Jeremy Clark, “In Dwork and Naor’s design, email recipients would process only those emails that were accompanied by evidence that the sender had done a moderate amount of computational work—hence, ‘proof of work.'” As the researchers further noted:
“Calculating the proof might take a few seconds on a regular computer. Thus, it would not pose any problems for ordinary users, but a spammer who wants to send a million emails would require several weeks using equivalent hardware.”
Elsewhere, “Ralph Merkle invented Merkle trees in the late 1980s — so we had hashing functions that were secure for the time,” Vessenes added.
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So why did Satoshi succeed while others founded? Was the world simply not ready for a decentralized digital currency earlier? Were there still technical limitations, such as available computer power? Or perhaps Bitcoin’s true constituency had yet to come of age – a new generation that distrusts centralized authority, especially in light of the Great Recession of 2008?
Establish “trustless” systems
David Chaum has been called “perhaps the most influential person in the cryptocurrency space.” His 1982 doctoral thesis, Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups, foresaw many of the elements that would eventually find their way into the Bitcoin network. It also presented the main challenge to be solved, that is:
“The problem of establishing and maintaining computer systems that can be trusted by those who do not necessarily trust each other.”
Indeed, an academic exploration of blockchain technologies’ origins by four researchers from the University of Maryland “paid tribute to the 1979 work of David Chaum, whose vault system embodies many of the elements of blockchain.”
In an interview with Cointelegraph last week, Chaum was asked if Bitcoin really could have been launched 15 years earlier, as some claim. He agreed with researchers from the University of Maryland that all the key blockchain elements were already present in his 1982 thesis – with one important exception: Satoshi’s consensus mechanism:
“The specifics of [Satoshi’s] the consensus algorithm is different, as far as I know, from those in the literature on consensus algorithms.”
When pressed for details, Chaum was reluctant to say much more than that the 2008 white paper described a “somewhat ad hoc … crude mechanism” that actually “could be made to work – more or less.”
In a recently published book, social scientist Vili Lehdonvirta of the University of Oxford also focuses on the uniqueness of this consensus mechanism. Satoshi rotated the cryptocurrency’s record keepers/validators – better known today as “miners” – about every 10 minutes.
Then “the next randomly appointed administrator would take over, double-check the previous block of records, and add their own block to it, forming a chain of blocks,” Lehdonvirta writes in Cloud Empires.
The reason for rotating miners, according to Lehdonvirta, was to prevent the system’s administrators from becoming too entrenched and thus avoid the corruption that inevitably comes with a concentration of power.
Although PoW protocols were well-known at this point, the details of Satoshi’s algorithm “really came out of nowhere … it wasn’t expected,” Chaum told Cointelegraph.
“Three Fundamental Breakthroughs”
Vinay Gupta, founder and CEO of the startup Mattereum, who also helped launch Ethereum in 2015 as its release coordinator, agreed that most of Bitcoin’s key components were available when Satoshi came along, though he disagrees on some of the chronology. “The parts themselves were simply not ready until at least 2001,” he told Cointelegraph.
“Bitcoin is a combination of three fundamental breakthroughs on top of public key cryptography — Merkle trees, proof-of-work and distributed hash tables,” all developed before Satoshi, Gupta said. There were also no problems with network hardware and computing power in the 1990s. “It’s the core algorithms that were the slow part […]. We just didn’t have all the core building blocks of Bitcoin until 2001. The cryptography was first, and the extremely smart network layer was last.”
Garrick Hileman, a visiting fellow at the London School of Economics, also cited a later date for Bitcoin’s technical feasibility:
“I’m not sure early 1990s is a strong claim, as some of the earlier work referenced in Satoshi’s white paper – e.g. Adam Back’s hashcash/proof-of-work algorithm – was developed and/or published in the late 1990s or later. ”
Waiting for a favorable social climate
What about non-technical factors? Perhaps Bitcoin was waiting for a demographic that had grown up with computers/cell phones and distrusted banks and centralized finance in general? Did BTC require a new socio-economic consciousness to flourish?
Alex Tapscott, a member of the Millennial generation, writes in his book Financial services revolution:
“For many of my generation, 2008 began a lost decade of structural unemployment, weak growth, political instability and a corrosion of trust and confidence in many of our institutions. The financial crisis exposed the greed, abuse and sheer incompetence that had driven the economy to the brink of collapse and prompted some to ask, ‘How deep did the rot go?'”
In a 2020 interview with Cointelegraph, Tapscott was asked if Bitcoin could have happened without the economic upheaval of 2008. Given the “historically high unemployment rates in countries like Spain, Greece and Italy, there is little doubt that the subsequent lack of confidence in institutions led many to view decentralized systems like blockchain more favorably,” he replied.
Lansky seemed to agree. There was no social need or demand for a decentralized payment solution in the 1990s “because we didn’t have enough experience that centralized solutions don’t work,” he told Cointelegraph.
“Bitcoin was undeniably a cultural product of its time,” Vessenes added. “We wouldn’t have a decentralized push without this DNA of distrust of central government technology controls.”
To pull it all together
Overall, one can go back and forth and argue about who contributed what and when. However, most agree that most of the pieces were in place by 2008, and Satoshi’s real gift may have been how he managed to pull it all together – in just nine pages. “No single part of Bitcoin’s basic mechanics is new,” Gupta reiterated. “The genius lies in the combination of these existing three components – Merkle trees, hash cash and distributed hash tables for the network into a fundamentally new whole.”
But sometimes the historical environment must also be favorable. Chaum’s project failed “because there wasn’t enough interest in this service” at the time, among other things, according to Lansky. Satoshi Nakamoto, by comparison, had perfect timing. “He came up with Bitcoin in 2008, when the classic financial system failed,” and the founder’s disappearance from the scene in 2010, “only strengthened Bitcoin, because its development was taken over by the community.”
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It should also be remembered that technological progress is almost always collaborative. While Satoshi’s system seems “radically different from most other payment systems today,” Narayanan and Clark wrote, “these ideas are quite old, dating back to David Chaum, the father of digital cash.”
Satoshi clearly had forerunners: Chaum, Merkle, Dwork, Naor, Haber, Stornetta and Back, among others. Said Gupta: “Credit where credit is due: Satoshi stood on the shoulders of giants.”
